Econ
Vietnamese banks struggle to lure long-term capital
Banks also need more capital to meet a capital adequacy ratio (CAR) of 8 percent in 2020 as per the SBV’s Basel II norms. Fitch Ratings estimated the Vietnamese banking system could face a capital shortfall of almost US$20 billion to meet Basel II norms.
Many domestic banks have to raise interest rates sharply to lure long-term deposits in a move to meet the central bank’s new capital regulations, causing concern about a domino effect on lending rates in the near future.
Saigon-Hanoi Joint Stock Commercial Bank (SHB) last week announced to issue long-term certificates of deposit (CD) in Vietnamese dong with an interest rate of up to 8.9 percent per year, applicable to 36-month CD.
SHB General Director Nguyen Van Le said CD is considered a long-term investment and its interest rates are also higher than those of normal deposits. The issuance, which has a total value of VND10 trillion (US$429.2 million), is aimed to help SHB have more long-term capital.
Despite the high rates, many other banks have so far also joined in the race to issue CDs to attract long-term capital as it is difficult for them to lure the fund through normal savings products. The interest rate of CDs is currently some one percent point higher than normal deposits.
At Southeast Asia Bank (SeABank), when customers apply for a 24-month CD valued at a minimum of VND100 million (US$4,290), they can enjoy a fixed interest rate of 8.4 percent per year, while a 36-month CD can bring them a fixed interest rate of 8.6 percent.
State-owned Bank for Investment and Development of Vietnam (BIDV) has also introduced high interest rates for long-term CDs. Specifically, an interest rate of 7.6 percent is applied for an 18-month CD valued at a minimum of VND10 million (US$430) for individual customers and VND50 million for corporate customers.
Lending rate affected
Currently, many banks are in a dire need of long-term capital as their ratio of medium- and long-term capital in the total remains limited. Meanwhile, according to State Bank of Vietnam (SBV) regulations, banks must reduce their short-term funds for medium- and long-term loans to 40 percent from early this year against last year’s rate of 45 percent.
In addition, banks also need more capital to meet a capital adequacy ratio (CAR) of 8 percent in 2020 as per the SBV’s Basel II norms. Fitch Ratings estimated the Vietnamese banking system could face a capital shortfall of almost US$20 billion to meet Basel II norms.
According to experts, in the current context, the most effective and rapid measure to help banks meet the central bank’s regulations is to increase long-term deposits by raising interest rates to attract depositors.
However, the experts are also concerned that the rate hike of deposits would cause a domino effect on interest rates of long-term loans. It will be hard for banks to keep the lending rate steady due to the rising input costs while their marginal interest rate (NIM) is low and is expected to continue to narrow this year, they explained.
Analysts from Bao Viet Securities Company forecast the NIM of Vietnamese banks will average at only some 3.2 percent in 2019 and the rate will be even lower at banks with high lending-to-deposit ratio. Meanwhile, the rate should stand at least 3.5 percent to enable banks to operate healthily according to recommendations of world’s credit rating organizations.
Besides, Nguyen Dinh Tung, director of Orient Commercial Bank (OCB), also forecast there will be a big gap in interest rates applied for different groups of borrowers in 2019.
According to Tung, while borrowers, who operate in the government’s priority sectors - including agriculture businesses, producing goods for export, small and medium sized enterprises, enterprises operating in supporting industries and high-tech enterprises including start-ups - will receive preferential rate of 5-6 percent per year, others might have to pay a rate of up to 11-12 percent per year.
Caption: SHB lists interest rate of 8.9 percent for 36-month certificates of deposit
SHB lists interest rate of 8.9 percent for 36-month certificates of deposit
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SHB General Director Nguyen Van Le said CD is considered a long-term investment and its interest rates are also higher than those of normal deposits. The issuance, which has a total value of VND10 trillion (US$429.2 million), is aimed to help SHB have more long-term capital.
Despite the high rates, many other banks have so far also joined in the race to issue CDs to attract long-term capital as it is difficult for them to lure the fund through normal savings products. The interest rate of CDs is currently some one percent point higher than normal deposits.
At Southeast Asia Bank (SeABank), when customers apply for a 24-month CD valued at a minimum of VND100 million (US$4,290), they can enjoy a fixed interest rate of 8.4 percent per year, while a 36-month CD can bring them a fixed interest rate of 8.6 percent.
State-owned Bank for Investment and Development of Vietnam (BIDV) has also introduced high interest rates for long-term CDs. Specifically, an interest rate of 7.6 percent is applied for an 18-month CD valued at a minimum of VND10 million (US$430) for individual customers and VND50 million for corporate customers.
Lending rate affected
Currently, many banks are in a dire need of long-term capital as their ratio of medium- and long-term capital in the total remains limited. Meanwhile, according to State Bank of Vietnam (SBV) regulations, banks must reduce their short-term funds for medium- and long-term loans to 40 percent from early this year against last year’s rate of 45 percent.
In addition, banks also need more capital to meet a capital adequacy ratio (CAR) of 8 percent in 2020 as per the SBV’s Basel II norms. Fitch Ratings estimated the Vietnamese banking system could face a capital shortfall of almost US$20 billion to meet Basel II norms.
According to experts, in the current context, the most effective and rapid measure to help banks meet the central bank’s regulations is to increase long-term deposits by raising interest rates to attract depositors.
However, the experts are also concerned that the rate hike of deposits would cause a domino effect on interest rates of long-term loans. It will be hard for banks to keep the lending rate steady due to the rising input costs while their marginal interest rate (NIM) is low and is expected to continue to narrow this year, they explained.
Analysts from Bao Viet Securities Company forecast the NIM of Vietnamese banks will average at only some 3.2 percent in 2019 and the rate will be even lower at banks with high lending-to-deposit ratio. Meanwhile, the rate should stand at least 3.5 percent to enable banks to operate healthily according to recommendations of world’s credit rating organizations.
Besides, Nguyen Dinh Tung, director of Orient Commercial Bank (OCB), also forecast there will be a big gap in interest rates applied for different groups of borrowers in 2019.
According to Tung, while borrowers, who operate in the government’s priority sectors - including agriculture businesses, producing goods for export, small and medium sized enterprises, enterprises operating in supporting industries and high-tech enterprises including start-ups - will receive preferential rate of 5-6 percent per year, others might have to pay a rate of up to 11-12 percent per year.
Caption: SHB lists interest rate of 8.9 percent for 36-month certificates of deposit
